Tejas Networks Ltd

NSE:TEJASNET

Earnings Call Analysis

Tejas Networks' Best Quarter with International Wins, Growth in 4G/5G

Tejas Networks reported their best-ever quarter in Q1 FY '25 with net revenue reaching INR 1,563 crores, an 8.3x increase year-over-year. The profit after tax stood at INR 77 crores. The company successfully scaled its manufacturing capacity and 4G/5G RAN installations for BSNL, shipping over 27,000 sites. Notably, Tejas secured strategic deals with Tier 2 operators in the U.S. and Southeast Asia for network modernizations. Anticipating growth, the company targets significant projects including BSNL 4G/5G expansion and Bharatnet Phase 3, emphasizing continuous improvement in wireless and wireline sectors. The merger with Saankhya Labs is in its final stages, promising further synergy.

Record Revenue and Profits in Q1 FY '25

Tejas Networks has reported its best quarter ever in Q1 FY '25, achieving revenues of INR 1,563 crores, which reflects an impressive year-over-year increase of 8.3 times. Profit before tax (PBT) was INR 122 crores, marking a stark contrast to the previous year's loss of INR 66 crores. This growth is encouraging for investors as it showcases the company's ability to significantly scale its operations and generate profit.

Strong Order Book and Future Opportunities

The company ended Q1 with a robust order book valued at INR 7,091 crores. With key projects such as the expansion of the BSNL 4G network and the Bharatnet Phase 3 initiative, Tejas Networks is positioned to capitalize on substantial growth opportunities. Investors should note that the BSNL network expansion alone could cover thousands of sites, highlighting the potential for solid revenue streams in the immediate future.

Recent Achievements in the Wireless Segment

In the wireless segment, Tejas has made significant strides in its 4G/5G RAN installations for the BSNL pan-India network, shipping over 27,000 sites. Additionally, they've scaled up manufacturing capabilities for RAN equipment, which could result in enhanced supply and responsiveness to market demands. This proactive strategy is critical for sustaining growth and meeting customer expectations in a rapidly evolving telecom landscape.

Solid Performance in Wireline Business

On the wireline side, Tejas secured strategic deals with Tier 2 operators in the U.S. and Southeast Asia, marking a pivotal step in its international expansion efforts. The expectation for repeat orders from existing clients in India and abroad suggests that the company can maintain a steady flow of revenues moving forward. This dual focus on international and domestic markets positions the company favorably for diversified revenue generation.

Merger and Cost Management Insights

The merger with Saankhya Labs is in its final stages, expected to enhance Tejas's capabilities and increase operational efficiency. Investors should keep an eye on this development as it could yield synergies that strengthen the company's competitive position in the long run. Despite an increase in borrowing to INR 2,844 crores, largely due to working capital requirements for ongoing wireless projects, the management expects this to stabilize as project execution ramps down later in FY '25.

Challenges and Strategic Focus

While Tejas Networks has achieved significant milestones, the company's international business still represents an area of focus. The international segment remains flat, contributing 3% of revenues this quarter. To address this, management emphasized enhancing their sales and marketing presence globally. Moving forward, establishing footholds in both emerging and developed markets will be crucial for sustainable growth.

Looking Ahead: Growth Projections

In terms of guidance, Tejas Networks anticipates continued growth driven by a combination of BSNL’s network expansion, Bharatnet Phase 3, and increased demand in the utility segment. However, clarity on EBITDA margins for future quarters remains less certain, with current margins around 15%, which management did not affirm as sustainable. As investors assess the growth trajectory, monitoring profitability trends and any potential shifts in margin expectations will be important.

Earnings Call Transcript 2025-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to Tejas Networks Limited Q1 FY '25 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Ashvik Jain from ICICI Securities. Thank you, and over to you, sir.

[Ashvik Jain]

Thank you. Good evening, everyone. Thank you for joining on Tejas Networks Limited Q1 FY '25 Results Conference Call. We have Tejas Networks management on call represented by Mr. Anand Athreya, Chief Executive Officer and Managing Director; Mr. Arnob Roy, Chief Operating Officer and Whole Time Director; Mr. Sumit Dhingra, Chief Financial Officer; Mr. Dr. Kumar Sivarajan, Chief Technology Officer.

I would like to invite Mr. Anand sir to initiate with opening remarks, followed by a quarterly update, post which we will have a Q&A session. Over to you, sir.

[Anand Athreya, executive]

Good evening, guys. Thanks for attending the Q1 FY '25 Tejas Networks earnings call. I have my colleagues here, Arnob Roy, CEO and Executive Director; Mr. Kumar Sivarajan, CTO, and Sumit Dhingra who is our CFO, and other team members in the room.

I want to give you some key updates for Q1 FY '25. I'm happy to inform you that this has been the best quarter ever for Tejas. Our Q1 FY '25 net revenue was INR 1,563 crores, which was an 8.3x year-over-year. And the profit of tax in Q1 FY '25 was INR 77 crores. And we ended Q1 with an order book of INR 7,091 crores.

Let me talk briefly about our business. We are primarily 2 segments: wireless and wireline. On the wireless business, our 4G/5G RAN installations for the BSNL pan-India network, it's progressing well. We have cumulatively so far shipped approximately north of 27,000 sites as of end of Q1. And we also have significantly scaled up our manufacturing capacity of the RAN equipment.

We have also, in addition to the B1 Band 1, Band 28 dual-band radios, we have also made production releases of additional 4G radios, which are mostly kind of globally bands also, which is Band 3, which is 800 megahertz, Band 5, 850 megahertz and Band 41, which is 2,500 megahertz. And we are also engaging with several wireless providers were for proof of concept, who could become our potential customers, both in private and utility verticals.

Now I'll go on to the wireline business. As we talked about engaging with international customers. So I'm happy to inform you that we won a strategic deal with the Tier 2 operators in the U.S. for their network modernization project, and also another telecom operator in Southeast Asia for a broadband rollout.

We are also seeing repeat orders of our GPON, DWDM and packet equipment from our existing customers, right, both in India, Southeast Asia and also in Africa. And as you know, we also are at one of the largest deployment of IP/MPLS routers India called BSNL MAAN. And we have made good progress on the installation commissioning. We delivered a lot of equipment last quarter and the installation and commissioning is happening as we speak.

One contract update I want to give you is the merger of Saankhya Labs with Tejas it's in an advanced stage. And NCLT has reserved the matter for orders. So now I think it's a matter of time when these things come together.

Now I will hand it over to my colleague, Sumit Dhingra, who will talk about the financials. Thank you.

[Sumit Dhingra, executive]

Thank you, Anand. Good evening, everyone. For the quarter 1 financial year '25, we had our total revenue from operations of INR 1,563 crores. This constituted revenue from sales and service of about INR 1,496 crores, this is of 8x revenue growth over the previous year and 28% growth over the last quarter.

Other operating revenue, which consists primarily of PLI incentives was INR 67 crores for the quarter as compared to INR 156 crores in the previous quarter. I would like to clarify that previous quarter included PLI receipt for FY '23 and for the full year FY '24. Compared to that Q1 defamation of revenue for PLI includes only the Q1 '25 component.

On an aggregate basis, the revenue grew at 18% growth over the previous quarter. Our EBIT for the quarter was INR 167 crores as compared to negative INR 80 crores to the previous year and INR 258 crores in the quarter before that. However, as I mentioned, this also had the impact of other operating income in the 2 quarters. So if I take that out, quarter 4 previous quarter, EBITDA was INR 101 crores. And compared to that, we are at INR 100 crores for this quarter.

PBT for the quarter is INR 122 crores compared to INR 233 crores for the quarter before that and negative INR 66 crores for the year -- quarter 1 for the previous year.

Profit after tax for the quarter is INR 77 crores. This is compared to INR 26 crores on previous year's quarter 1 and INR 147 crores for the quarter 4. Our full year quarter -- full year profit after tax for the last year was INR 63 crores. Compared to that, in the current quarter itself, INR 77 crores of PAT.

If we move to the next slide, which talks about key financial indicators. Our inventory increased from INR 3,788 crores to INR 3,853 crores in the quarter. This increase is predominantly due to ramp-up of wireless shipments, and this will get converted over the next months into finished goods and get shipped.

Trade receivables grew from INR 1,458 crores to INR 2,052 crores. This, again, is increased due to higher shipments in Q1, but we made progress in terms of collections as well, and we collected about INR 1,170 crores during the quarter. Payables has come down from INR 1,839 crores to INR 1,376 crores. But at the same time, the borrowings have gone up from INR 1,744 crore to INR 2,844 crores, which implies a net debt of about INR 2,200 crores at the end of the quarter. Our cash position stands at INR 612 crores.

With this, I'll hand it over to Arnob Roy to take care of the next slide.

[Arnob Roy, executive]

So in the next few minutes, I'd like to give you a color of the business that we have done in Q1 and also the outlook for our business going forward. So as far as Q1 is concerned, the revenue mix as we put our business in the industry sector, the India Government, India Private and International. The Indian Government saw about 7% of our overall revenue for the quarter, and we saw a significant growth, a healthy growth of 2.5x year-over-year. And this growth was led mainly by the network in house in the utility segment.

The India Private consisted 90% of our business. And as you know, we categorize the BSNL 4G shipments it goes to TCS. The category back to India Private -- so the India Private business, about 90% of our revenue for Q1 and had a very strong growth over 14x of Q1 of FY '24, and mainly dominated by the BSNL 4G shipments.

International business was largely flat. The slight decline and 3% of our overall revenue for the quarter. And as we mentioned earlier, this is an area that we have significant focus on, and we are increasing our sales and marketing presence in international territories, and we are into a lot of engagements in the international territories as well, and I'll talk about that a little bit.

So in this quarter, we had for international shipments, our sea shipments happened to the customers in Africa and in South Asia. So we closed the quarter with a backlog of INR 7,091 crores. It is was lower than the backlog that we closed in Q4 and largely a lot of the wireless shipments happened as we expanded our increased our wireless shipment in the quarter that's part of the reason why the backlog went down.

And as part of the backlog, we still had a significant amount is INR 1,800 crores. We dominate partly our BSNL 4G backlog. And the international was INR 260 crores.

So going forward, some of the key opportunities being targeted, and this is beyond, of course, our regular run rate business with our existing customers, we schedule keep on buying on the -- in terms of multiyear contracts. The key large opportunities we targeted is -- one is the expansion of BSNL 4G network. We know that they could build out for satiation sites, as I call it, and it correspond the backhaul network, which is an extension of the MAAN network.

And then Bharatnet Phase 3, which has the tenders which we have come to an advanced stage, and I think the being in the time has not been pushed out, but this will also some of the big options that we're targeting. And then the Kavach project of Indian Railways for the Collision Avoidance systems based on where our 4G technologies are a key part of the communication infrastructure. We have done successful POC over here, and we are waiting for the tender process to get through.

The expansion of the network as back hone in the utility segment. I mean, this segment, we're seeing a signal strong demand in this segment, both for their captive network requirements as far -- as well as their telco business, their wholesale bandwidth business. And we see a lot of opportunities during the year where they want to see their backbone network several times built on our optical transmission technology.

We also -- internationally, we are offering engaged in several broadband opportunities with Tier 1 -- multiple Tier 1 opportunities in the Middle East. We have a good position in the network, but it will take some time to close, but we are in advanced stage with trials and other easement and commercial engagements. And then in South Asia, we are also engaging the wireless and a metro aggregation opportunity with a Tier 1 operator. And in both of these include our 4G, 5G equipment, our packet transport equipment as well as our Metro Aggregation equipment. So this is also one of the large deals that we are working on, where we are in advanced stage.

And we're looking forward to winning a significant part of these deals to be able to create our build backlog for the future. I would like to go on to giving you some color of our business outlook that we see over the next few years. And as you all know, the network traffic worldwide continues to grow rapidly. And right now, we're on the cusp of a significant growth, driven by newer generation applications like Generative AI.

These are not the key drivers on the key applications driving the building of AI data centers and the interconnectivity and that's generating a huge amount of traffic. Also application network reality, special computing which is processing high amount of 3D data and doing a huge amount of computing as well as exchanging data with servers located in remote locations.

Then multiplayer gaming consuming a high amount of bandwidth because it's working with a high, definition video high definition profit and that's also causing a huge amount of flow. And then the growth of streaming video that we are all familiar with.

So all of this growth in the technology and the network traffic is driven by enablers of advanced communication technologies, the kind of stores that we build the 4G, 5G mobile broadband, multi-gigabit fiber broadband and transmission technology and then it's computing devices at the other.

So all of this is leading to newer investments, value fresh investments in the fixed and mobile networks worldwide. So some of the things that are happening are the transformation in enterprises and cloud, AI data centers and their connectivity, high bandwidth connectivities. It's a long runway of deployment of 4G and 5G globally. 4G is primarily in a lot of the developing countries where deployment is at an initial stage and 5G in many of the developed economies. And then massive investments in broadband connectivity that's happening the rollovers, including developed economies of Europe and the U.S., there are massive investment programs going on.

There's a modernization of utility network, which is demanding the transition from the old TDM to IP networks, and that has been happening for a few years, and we are seeing an acceleration all the adoption of this transformation. Our digitalization of cities and economies, building out of smart and cities across the world. So these are some of the many phenomena that we have that's happening. And the outlook for our business over the next few years still looks strong. And all of this is driving our development of key technologies for wireless WAN and cross all our multi-drive packet and optical transmission technologies and high-speed broadband access with GPON and XGS-PON and technologies.

So in summary, our business outlook looks strong. There are many new generation applications which are driving our business going forward. And so I think that is what is also driving our investment in technology, in R&D, in catering the requirement driven by the evolution.

So with this, I'll pause over here and we'll open the floor for questions.

[Operator]

[Operator Instructions] First question is from the line of Rishabh Gang from Sacheti Family Office.

[Rishabh Gang, analyst]

Good set of numbers. I wanted to understand what is the total universe of sites which are eligible 4G, 5G RAN, I understand for BSNL, we have done 100,000 sites as of now. So what is the universe for BSNL? How about that, how much percentage is eligible for a 5G RAN, like what is your best estimate how much sites will go to 5G upgrade? And what is the kind of cost which will be incurred, let's say, INR 100, it costed for 4G RAN equipment. So how much would it cost for the 5G update?

and regarding the 4G, 5G RAN, for the private telcos, like Jio and Airtel have done a good amount of CapEx some years ago. So when do you think the replacement cycle will come from the private telco side.

[Anand Athreya, executive]

Yes. So as far as BSNL is concerned, we are still -- first of all, we are seeing a lot more investment that still needs to be done in 4G and I talked about a good network expansion in terms of the saturation size that were going to come up with BSNL, there's remote sites across the country. So the 4G expansion is a key part of our wireless -- optimum wireless business.

As far as 5G is concerned, there are 2 parts pouches to it. One part is 5G upgrades in the existing 4G bands, right? And so that's part of the existing tender that we are executing right now. So that is going to happen, and that's the business that is part of the tender that's going to be excluded later on. Apart from that, BSNL is also going to come up with a nationwide tender for 5G in the performance back in the high speed transfer called the 3.5 gigahertz.

So that is still in the words. There will be a process of POC of equipment and all that kind of things. So that's going to be something that a nationwide will not, which is -- it depends on the scale at least the employee. And it is certainly going to be on the scale of what the private operators have done.

[Rishabh Gang, analyst]

Can you draw some comparison between the 4G spend per site and 5G spend per site. I want to have some numbers or some percentage.

[Anand Athreya, executive]

Yes. So absolute numbers are -- [indiscernible]. But if you see the kind of spend that is going to -- that has happened in 4G. And if you take another 20%, 30% more spend that's going to happen in 4G, then 5G's going to be not of that scale, it was smaller because a lot of the initial 5G deployment happens in hardwood area, right, initially. So that is going to be a smaller percentage of that. And then when 5G adoption happens and 5G monetization happens and like the rest of the operator, I think lot of increase in 5G deployment will also happen across the [indiscernible] depo the country. It's going to happen in phase.

[Rishabh Gang, analyst]

So how much does an upgrade cost? Like how much -- let's say INR 100 is the 4G cost. So how much is an upgrade for 4G to 5G?

[Anand Athreya, executive]

So as I said, there are 2 parts: upgrade of 4G to 5G in the existing 4G bands, that's a fraction, right? I mean that's a smaller fraction because it comes with a small amount of hardware and software upgrades. But 5G deployment in the new bands in the performance band, that spend is as much as that and if not more than that of 4G RAN, right? Because especially -- this is deploying things like massive MIMO with APR, constant rise of 32 PR and stuff like that. Our cost technology, which gives a very high-performance radio capabilities. Those costs are obviously higher. But on the average, you can look at the 4G side plus kind of business as a 4G unit cost.

[Rishabh Gang, analyst]

Got it. On the private telcos, can you give some idea on when CapEx actually started for players like you and Airtel and when do you think the replacement cycle will come and some idea of how much size can come? Yes.

[Anand Athreya, executive]

I mean -- so 4G, you already know the 5G deployments that these operators have done. And right now, we see the first phase of deployment that has happened. And going forward, as 5G usage goes up and 5G monetization go up, I mean we expect to see a lot more requirement to happen because this network is still small compared to the overall 4G network.

And 4G is still the backbone of the mobile different network funds and operators. But as 5G becomes more and more popular, more cost-effective and more newer applications come in, also 5G network will go up as well and kind of power the entire country and maybe over time the 4G network.

[Rishabh Gang, analyst]

What is the useful life of such equipment?

[Anand Athreya, executive]

Well, useful I think if you look at how the 2G has network has been deployed and living and then how 3G got deployed. So it depends on the success of a particular technology, a particular technology and if it dry for 7, 8, 9 years, it's a technology successful. If the condition happens sooner then it can happen in 5 years. So I mean have to just look at how things evolved in India to get an idea of that.

[Rishabh Gang, analyst]

Got it. Very interesting. Sir, like we compete with players like Nokia, Cisco and Ericsson, right. So I wanted to ask how much cost advantage do we actually have against these players? And how much of the cost advantage is taken away when these players have an Indian R&D and manufacturing setup. Because I believe all of these 3 players have R&D and manufacturing setup in India. So do we really have a cost advantage there?

[Anand Athreya, executive]

Rishabh, I really suggest in the interest of time. This would give an opportunity to other people for asking their question. I'm sure the questions will be covered during the call. I'm sure we will have similar questions. And if not, I'll come back and answer before the end of the call.

[Operator]

Next question is from the line of [ Ashish Shiram Saker ] from JM Mutual Fund.

[Unknown Analyst]

Sir, if you can example on the data usage side, do we have a rule to obviously open community did mention okay? But it, as well as the switches are probably and it will go through become differentiation on our part. And also, is that potentially by what time lines are you targeting some of these players?

[Anand Athreya, executive]

Yes. So I think there are 2 parts to the question. What is our role in data centers? Our communication equipment is attributed for the data center connectivity, right? We don't sell equipment inside the data center. It is mainly the high bandwidth connectivity that is required between data centers as the exchange to take sometimes to feel backup and all those kind of things.

So the data center interconnect is a market that we play in. I also talked about -- you also raised a question about our switches, they are to late. So the switches that we have is mainly for building campus networks and enterprise networks, and they are not -- the application is not inside data centers. There are some of cities and all those kind of the, that's not where we're playing. Our cities are used mainly for building campus networks.

[Unknown Analyst]

Okay. That's fair enough. Sir, in addition, the recently said that the telco automation has it all the -- and since we are now also deploying our investments to take those markets and obviously, we have won one of those days. How do you see the landscape evolving especially in the U.S. now?

[Anand Athreya, executive]

No. I didn't get the point on excess inventories in the U.S. I didn't quite understand that. But in general, I think there's a lot of investment that is happening in the U.S., again, driven by the same things, driven by the cloud, driven by AI, AI data centers and so on. I mean I think is for everyone to see, right, how the AI component suppliers, how their business is going.

So all of that is going into building AI cloud centers and more and more applications running over there. So the phenomenon that I talked about of interconnectivity that is also there very strong in the U.S., right. Apart from that, we're also seeing a huge investment happening in the government what you call the program for rural connectivity across all of the U.S. in the U.S. is a very large country and a population was set out.

So there's a lot of investment going on in those markets or providing broadband connectivity so all of these provide us opportunities. The initial opportunities that we are apart from this, all the interesting opportunities that we are targeting is modernizing of very old network in the U.S. as you know U.S. has a very advanced economy with telecom networks, which have been built over a long period of time.

So a lot of it is legacy networks which are getting transformed as we speak. And so we have very interesting technology in the area, which are -- which we are engaging as with several customer projects.

[Unknown Analyst]

Yes, fair enough. So lastly, the entire BSNL execution that will happen in FY '25 depend second, the EBITDA margins that we imported this quarter around 15%. Is there a suitable number for the entire year?

[Anand Athreya, executive]

I didn't get your question fully, but the first part I got, which is that -- yes, the current few that we have the current opportunities that we expect to complete in FY '25.

[Unknown Analyst]

And the reported EBITDA margin of 15% this quarter that we did. Is that a sustainable number to assume going forward?

[Anand Athreya, executive]

So we don't give any guidance on our margins and the financials. But I think you can look at the trend and make your assumptions about that. But I don't give a guidance on these questions.

[Operator]

Next question is from the line of Vimal Jamnadas Gohil from Alchemy Capital Management Private Limited.

[Vimal Gohil, analyst]

I have 2 questions. One is on our visibility post FY '25 in terms of our GPON and DWDM, which is our cash cow, so to say, for our customers ex of BSNL, which is India Private and International customers. So what's the visibility looking like since we have sort of increase our manufacturing capacity, how do we sort of make sure that as and when the BSNL contract ramps down, we utilize our manufacturing capability to the most efficient possible extent. So that's question number one.

The second question is for Mr. Dhingra. Sir, on the wireless margins, how do you see the wireless margins panning out over a period of time? I do understand that you don't give out forward guidance. But as and when we -- the BSNL contract comes into our numbers, do you expect the wireless piece to sort of come in line with company average post FY '25?

[Sumit Dhingra, executive]

Yes. So I'll address the first 2 questions about GPON and WDM outside of BSNL. Yes. I mean our -- most of our GPON and WDM business right now is outside of BSNL most of the private operators from the utilities and from our international customers. And as I mentioned, there is a huge demand for broadband connectivity and for upgrading our backbone network. And these are the places where our equipment is very applicable and very relevant.

So as and when we win additional deals based on the increasing demand, I mean, that business looks healthy and looks -- will continue to grow, and that's what our expectation is. As far as manufacturing capacity is concerned, so we -- as we have mentioned earlier that we have a very asset-light manufacturing model, right where in the back end, we work with large EMS vendors of scale, right, for building our -- what we call is the PCB assembly. There is a hardware blocks that go into resemble our systems.

So as we scale up for manufacturing capacity in the back end, we have signed up with multiple EMS partners, and they have a lot of capacity, for us, all you have to skill up is our system assembly and test capacity in our hubs in bank Bangalore. So as we scale up our manufacturing capacity, the largest scale up happens in the back end, which is BSNL. So it's a low effort or no intensity investment for us to really scale up and scale down our manufacturing because of the model that we follow.

But the reason we have also scaled up is not only for the BSNL business, but over time, over long-term, we are bullish about how our business is going to go and grow both in wireless as well as wireline. So a lot of the preparation and the investment that will happen is to address opportunities in the future as well. So, margin?

[Anand Athreya, executive]

Yes. See, the -- as I mentioned earlier as well, this is the first wireless projects that we're executing. And as we go along, as we add more wireless orders going forward, we would expect the margins to improve. There is no particular reason to suggest that the wireless margins would be very different from wireline margins in general. And as we ramp up our businesses and as we ramp up our -- foreign or international orders, you'll see the margins improve and potentially be at the same level for both wireless and wireline products.

[Vimal Gohil, analyst]

Sir, how does the visibility look for international orders for our wireless products post FY '25?

[Anand Athreya, executive]

Yes, right. So as I said, we are engaged deeply that there are many opportunities, international markets. And these deals take some time to convert because we go through some trials and commercial cycles and all those kind of things. So we are at the initial phase of international engagement with all wireless products and really close over a period of time. But we do see a lot of opportunities given the -- we own the pools we build out that is happening in a lot of the emerging markets and also the 4G replacement that will happen of very old 4G for the year that that's going to happen in the market as well as well as 5G expansion in the developed market. So all in all, this includes opportunities as for us and extra.

[Operator]

Next question is from the line of [indiscernible] from InCred Asset Management.

[Unknown Analyst]

Sir, I wanted to understand what is -- how much we would have bid for the Bharatnet Phase 3, what will be our opportunity here?

[Anand Athreya, executive]

Could you please repeat the question? I didn't...

[Unknown Analyst]

Sir, for Bharatnet Phase 3, Stage 3, what kind of order size opportunities there for us?

[Anand Athreya, executive]

Okay. In a Bharatnet Phase 3 for us as far as the equipment is concerned, come to the 2 parts. One is the GPON equipment, ONTs and OLTs. And the other part -- a larger part are the IP/MPLS routers, which is going to be used in Bharatnet. So for both of them, we have very relevant products. And they are -- we are going to -- we are actively working with customers and our system integration partners to pay into this project.

Initially, as you know, the Bharatnet as a budget is quite a large one, like INR 30,000 crores and the equipment budget is roughly 9% to 10% of that. And in the first phase, we see around anywhere between INR 4,000 crores to INR 5,000 crores of equipment, it is getting addressed to the initial vendors. So but that is the overall landscape, and we are going to -- we hope to win a significant part of that.

[Unknown Analyst]

Sure. And this would be for how many GPs 167,000?

[Anand Athreya, executive]

I am not sure about the number of GPs that are getting covered. I'm not -- I don't have the number of it.

[Unknown Analyst]

Got it. And one last question, sir, what type of debt numbers we would have to take more debt now going ahead for working capital purposes? What kind of peak debt we would add?

[Sumit Dhingra, executive]

See, again, if you want to give guidance on future numbers. But as a trend, this increase in borrowings is essentially for working capital purposes, which is predominantly led by the wireless project that is getting executed. Now as mentioned earlier, this project, we are expecting to complete this year. And as shipments progress, working capital intensity would increase a little bit from here and then thereafter keeps coming down.

So I think within this year, you would see that sort of project execution that the working capital would like up and then gradually come down.

[Operator]

The next question is from the line of Kushal Kedia from Wallfort PMS.

[Unknown Analyst]

My first question is what kind of an order book pipeline are we looking at on the opportunity front that you mentioned that the BSNL and 4G network, the Bharatnet Phase 3 coverage for the railways expansion of utility networks, what is the kind of order pipeline that we're looking for?

[Sumit Dhingra, executive]

So it is -- these are not orders that we have won as of now, right? I mean we have talked about -- we have order book of INR 7,000 crores, and these are the new opportunities, new large opportunities that we are targeting, right. So I can give a flavor of what is the size of expansion of BSNL 4G network or Bharatnet Phase 3 I just talked about that right now. So similarly, I mean, there are Indian railways as well as broadband operators, we're all quite large opportunities, which will enable our growth for the future and create our business pipeline as well backlog so this is hard for me to quantify and say that this is going to be the number going forward quarter after quarter, right? Just want to give a flavor of what's that.

[Unknown Analyst]

Sure. Okay. So sir, one more thing that in the previous participant's question, you answered that Bharatnet equipment budget is around INR 4,000 crores to INR 5,000 crores for -- in Phase 1.

[Anand Athreya, executive]

Yes. This is actually Bharatnet phase 3. But yes, I mean, the overall equipment budget is actually the sanction budget is much more than that. But initially, what we are saying in this current phase that is being tendered to be in the range of INR 4,000 crores sale of the equipment.

[Operator]

Next question is from the line of Sachin Jain, an individual investor.

[Unknown Attendee]

Facility, my question is [Technical Difficulty] we are doing for a lot of private and utilities. The first is, are there international phase is we are doing dispute -- and where are -- on this , what would incur -- BSNL to get under. And so right to win over there essentially, we are fighting with Nokia or Ericsson of the world. So can you give more qualitative color from that sector?

[Anand Athreya, executive]

Yes. So I guess your question was specific to hard as to 4G 5s, right? So as the POCs, which are ongoing are across deployment across a few sites, right? It could range anywhere from 5 to 10 to even more than that and it goes through an extensive free trial, which also includes interoperability with the software, with the core and also into -- with other radio insistent which is deployed out there because a lot of it, including handovers and all those kind of things and time.

So POCs for wireless equipment is of this kind of a nature. The question is that how do we would compete with Nokia and Ericsson and all those kind of people. So there are few areas or the more modern 4G equipment with many different banks which have deployed by operators. And then we also have a lot of efficient technology with the business. For example, our RAN equipment comes with architecture to come with integrated backhaul, integrated transport, right.

So with technology like that, what is -- sees a lot of CapEx and OpEx cost for the operator because typically, brand equipment is back-ended with a separate backhaul equipment and outer or an equivalent equipment like that. But what we have done is we have integrated a lot of this technology into our RAN equipment, into our ONT. So as as a result of which, is a significant saving to the customer for building this backhaul network, both in terms of -- not only in terms of CapEx, but also in terms of OpEx in having to manage a different backhaul network, right?

So apart from that, I mean our baseband unit, which is part of the RAN is also what we call Visa ultra converged broadband access, right? So whenever you deploy our there is the equipment is architecture as that you could also incur hardware modules for where we could launch your broadband services for homes and enterprises, right?

So this huge amount of technology integrations that we have done in our RAN equipment and specifically the baseband unit, this was -- these are some of the big differentiators that we actually project and our customers also officiate which helps them in optimizing the network cost. So these are some of the areas. And of course, there are many other smaller details that are.

[Unknown Analyst]

How big this opportunity would be from some of the opportunity each?

[Anand Athreya, executive]

Yes, yes. So obviously, it is not going to be one shot as big as a large BSNL deployment of 100,000 500,000-plus site look at the expansion is going to be even more. So these are definitely not going to be one shot [indiscernible] if it is a greenfield deployment, a lot of the emerging economies are smaller countries price. So each of them would be in several thousands of size or tens and thousands of size, but not on the scale of what we see in India. That would be there.

But on the aggregate, there would be many opportunities like that. So that's how we see at least international opportunities. So wherever -- and these are all the greenfield networks. But whenever it's -- there's an existing 4G, 5G deployment and they're trying to upgrade and stuff like that again, going to be a portion of the network, or fraction of the network, we want to upgrade either with a different band or replacing old 4G equipment and things like that, all replacing old 4G equipment with our kind of 4G the upgrade to 5G, and that's the refresh of 4G equipment that we can do it. So all of this will be portions of the network and will not be as large as one large BSNL network of 100,000 plus sites.

[Unknown Analyst]

Actually for you in Indian relevant opportunity size for you, can you give some idea on that also? .

[Anand Athreya, executive]

When you say a different opportunity for for India or global?

[Unknown Analyst]

In the railway project.

[Anand Athreya, executive]

The railway covers, the project railway what I know is like around 15,000, 20,000 -- 15,000 sites, which is covering the entire railway network. That's our detailed estimate of what's coming in the tender.

[Unknown Analyst]

Opportunity for you if you can highlight?

[Anand Athreya, executive]

Yes. So I think the overall scale is 15,000, and it depends on how it is tendered and whether it's got to senator it is due and all those kind of things, so we don't know all the details here, but such is kind of the scope of there is an opportunity.

[Unknown Analyst]

If you don't mind you are providing entire Kavach system -- entire...

[Anand Athreya, executive]

Sorry, I didn't understand the question.

[Unknown Analyst]

On Indian Railways Kavach, what part of opportunity you are reducing is on the connectivity part or if you're providing entire solution?

[Anand Athreya, executive]

Only the connectivity, only the wireline.

[Sumit Dhingra, executive]

Only connectivity.

[Unknown Analyst]

Understood. And my last question is...

[Anand Athreya, executive]

Can we give opportunities to the others also, and we can maybe get back with you.

[Operator]

Next question is from the line of [indiscernible] from Ratnabali.

[Unknown Analyst]

I have a couple of questions. First, so far, you have received various order in terms of lease in 4G. So now is it fair to assume that in the next 3 years, the large orders that you were expecting our BSNL 4G to 5G and higher mix is number one. I related to that, are we going to see the similar kind of execution cycle that we are seeing for BSNL 4G in terms of it of this 5G as well as BharatNet that's 12 to 15 months? .

[Anand Athreya, executive]

SP1 So these projects have been -- roughly, you're right. It's going to be not 12 months. It is going to be more than that. This is on the side of the networks that they're going to. Some of it but they are going to be tendered. And also when the railways going to happen. But once it is decided and once the execution happens, we expect each of the opportunity is going to be between 18 to 24 months, I will say, given the scale of things that are going to happen.

[Unknown Analyst]

And sir, like what we have understood, like in this of 5G, the number of base stations, is it am I correct if you tell you guide the 4G patients are more because the fixes is high, we than is slow compared to 4G. So these stations will be smaller and the number will be much bigger. So can we assume that as the numbers are bigger because of 5G, the order potential will be bigger also?

[Anand Athreya, executive]

So if you look at 5G deployment, I think initial 5G deployments have been focused more towards the metro, right, towards high usage and high paying customers. So initially, if you look at the 5G deployment that will happen on the private operators is a smaller trend the overall 4G network. What that core reasons because they wanted to focus on the customer would be using it.

As 5G becomes more popular and become widespread, the network could be definitely become as big as the 4G network. And also what will happen is that as more advanced technology, advanced radios of massive MIMO and all those kind of things coming and the performance goes up, I think the cost of those radios will also be higher as the.

So that's the way to really look at it that over time, the network initial 5G deployments are small, but then go to go and cover degree as we go forward as our business matures and also one of the high pro forma railways are going to come in, which is also going to drive a lot of CapEx purchases for that recent.

[Unknown Analyst]

Okay. Sir, in July of this year, we have come across, we use that Chinese equipment makers like [indiscernible], they are planning to make some JVs with Indian companies. So do you see more competition is coming because when they will be terribly JV with Indian companies so they can be considered as an Indian entity and they can be also in Indian projects?

[Anand Athreya, executive]

No, I think the -- all the policies about JVs we kind this company, I mean the will not get clear how that's going to happen. But as far as India product is concerned, I think there's a very clear definition about what Indian indigenous products are, and that is not only designed and manufactured in India, but also the ICR has to exist in India as a we owned in India registered in India. And there are other rules in terms of the profit of the companies have to live where the headquarters are going to be. So they are very, very well defined high tools in terms of what defines Indian company making indigenous technologies. So we don't see joint ventures or anything like that diluting that kind of a thing, right? I mean, [indiscernible] if at all, happens about and it -- differs in India. But as far as -- so Blue making India is concerned, I don't think the current rule enable that for technology, which may be imported or on technology case.

[Unknown Analyst]

Okay. My last 2 questions, sir, if you can help us understanding the potential of data center business and the margin that you have reported this quarter, which is around -- EBITDA margin I'm talking about 15%, will this be a sustainable margin going ahead?

[Anand Athreya, executive]

So data center, as I said, the growth of data centers enables our business because even though we'd not say inside the data centers, where data center interconnectivity is what drives our business. So with the growth of data center, with the growth of additional area data centers as well as the AI, cloud centers and so on, the inter connectivity, it gives us a huge opportunity for our communication equipment.

And as far as EBITDA margins are concerned, it's clear clarified earlier, we don't give guidance of margins and profitability. And I think we have to really make our estimates on the trends that we see, right.

[Operator]

The next question is from the line of Abhishek, an Individual Investor. As there is no response from the current questionnaire, we will move to the next question from the line of [indiscernible], who's an retail investor.

[Unknown Attendee]

Sir, may I know when was the international order comes to the sale of the Indian product in terms of scale?

[Anand Athreya, executive]

Yes. So I think -- as we mentioned that our ambition is to become a global OEM in telecom. So a lot of our new investments in sales and marketing is happening in global markets earlier in markets in Southeast Asia and Middle East and Africa, and now we are making a lot more sustained investments in advanced economies like the U.S. and Europe and all this center will be a lot of opportunities and also relevance for the kind of product and technology that we have.

But cycles are long, this takes a lot of patients, a lot of trials, a lot of investments and the conception all those kind of things that happen. So this will happen over time. Over a period of time, of course, we want to see our international business to grow as large as our domestic business, but that's going to happen over a period of time.

And while that is happening, we don't want to take our eyes off Indian market opportunity, which is very exciting. I mean a lot of investments are happening, a lot of growth is happening. This is our own market, we want to make sure that our full focus, and we do not miss out any opportunities over here, while at the same time, we keeps growing our international investments.

So long story short is that India is going to remain as a focus. As we grow our international business over time, our ambition is to make it a big in the domestic market, but it's going to happen over a period of time.

[Unknown Attendee]

Sure, sir. SP1 And also, can I know what is our company doing in order to secure the international orders when the cycle at all and what can we do more or...

[Anand Athreya, executive]

Yes, yes. So what we're doing is we are increasing our business. We are increasing our sales offices, support offices, warehousing, building our teams over there engaging with customers sitting at labs in many different geographies, engaging with customers, setting up trials and all those kind of things. So those are the activities that are happening, actively participating in RFPs and all that kind of things. So that is what is happening. And that is initial part of engaging with international customers and business, okay?

[Sumit Dhingra, executive]

I think it's probably time. I'm ready to make some closing comments.

[Arnob Roy, executive]

Yes. Thank you, on. And I now hand it over to Anand for any closing comments.

[Anand Athreya, executive]

Thanks, Arnob. So thank you, guys, for asking a lot of good questions. So I just want to close that while we're happy about this quarter, we are also ahead on focused on execution and delivering rest of the orders and also to see how we can grow the business more. So the team is very focused on making that happen. And again, I want to thank you for your time and questions.

[Operator]

Thank you very much. On behalf of ICICI Securities, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.